SBA Loans: What’s the Catch?

SBA Loans: What’s the Catch?

A government entity created to bolster economic growth through financial aid, it’s easy to think that the Small Business Administration (SBA) and its Certified Development Companies (CDCs) are too good to be true.

What’s The Catch?

While there is no soul-signing-away process, the SBA and CDC do expect certain behaviors from you and your small business after you’ve secured the necessary loan from them. Contrary to most quid-pro-quo arrangements, holding up your end of the bargain actively benefits you and your community. We call that a win-win!

What You Get:

As the business owner, you’ll only have to invest 10% of the total cost.

The bank (AKA lender) typically invests 50%

Your CDC typically covers the remaining 40%

Funds provided under the 504 SBA loan are reserved for specific purposes:

Real estate or buildings

Construction equipment & machinery

Fixed rates for 10-20 years (the term of most 504 SBA loans)

What You Owe:

Operate a for-profit business in the United States within size standards outlined by SBA:

Tangible net worth under $15 million

Average net income of $5 million or less, after federal income taxes for 2 years prior

Conditional Community Enhancement:

Business must create or retain one job for every $65,000 receivedOR

Community Development Goals

Improve or stabilize economy

Stimulate business development

Generate revenue/income for community

Assist manufacturing firms or Labor Surplus Areas

Public Policy Goals

Revitalize business district

Expand small businesses & minority-owned businesses

As you can see, the SBA & their CDCs have the best interest of your business and your hometown at heart.